Flipkart created new subsidiaries to accommodate new e-commerce policy

Mar 9, 2019 by The Passage Team

In a bid to bypass the recent changes in e-commerce policy, Bengaluru-headquartered online retailer Flipkart has created at least six companies to act as an intermediary between its wholesale arm, Flipkart India and a few selected sellers on its platform. The development was first reported by ET.

Sports Lifestyle, Premium Lifestyle and Fashion India and Wishberry Online Services are among the intermediaries that will purchase products from Flipkart India and supply them to preferred sellers including SuperComNet, Omni-Tech Retail and RetailNet, which will then offer them on Flipkart, the report said, citing two unnamed sources.

In December last year, the Indian government modified foreign direct investment rules for e-commerce players, barring online retailers from selling products via vendors in which they have an equity interest. The ruling also banned e-tailers from signing exclusive deals with vendors.

According to the updated policy, if more than 25% of e-commerce sales comes from a single vendor, the online platform will be considered running an inventory led business and by extension won't be allowed to attract foreign investment. This move was to ensure online platforms do not discriminate between vendors.

The curbs that came into effect on February 1 has forced e-commerce majors such as Amazon and Flipkart to come up with alternatives to make space for the new FDI rules.

Last month, in an investor's call Walmart CEO Doug McMillon said, “We were disappointed in a recent change in law and the lack of consultation, but the team has worked to ensure we are in compliance with the new rules. We hope to have an effective productive dialogue related to future changes that happen.”

Flipkart has created a layer of business-to-business entities to act as intermediaries between its wholesale arm and prominent sellers on its platform so that it can stick to the 25% rule. These intermediaries are yet to start supplying to Flipkart’s preferred sellers, the report said.

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.